20 December 2016

Whistleblowing

Commendably keen on whistles, but only those with the right pitch? The Minister for Revenue and Financial Services has today released the 'Review of tax and corporate whistleblower protections in Australia' paper for consultation, with responses due - surprise - in early February.

I do wonder why we are restricting the consultation to tax misbehaviour rather than whistleblowing generally.

The Minister's media release states
This consultation is the next step in implementing the Government's commitment to Australia's first Open Government National Action Plan and the announcement in the 2016-17 Budget that protections for tax whistleblowers be developed.
The Government is committed to the reform of whistleblower protections in the corporate and taxation areas. This consultation process will complement the Parliamentary inquiry into whistleblower protections in the corporate, public and not-for-profit sectors. 
'Whistleblowing plays a critical role in uncovering corporate and tax misconduct. It is a key means of combating poor compliance cultures, by ensuring that companies, officers and staff know that misconduct will be reported. Active protection of whistleblowers to encourage them to make disclosures is essential and the Government is determined to ensure it has the right legislative settings in place to achieve this, while at the same time ensuring disclosures can be fully investigated and that procedural fairness is provided to those who may be the subject of a disclosure' said Minister O'Dwyer.
The Treasury website states
In the 2016-17 Federal Budget the Government announced the introduction of new arrangements to better protect tax whistleblowers as part of its commitment to tackling tax misconduct. In addition, as part of the Open Government National Action Plan, the Government has committed to ensuring appropriate protections are in place for people who report corruption, fraud, tax evasion or avoidance, and misconduct within the corporate sector. This consultation paper is also intended to complement the work of the recently established Parliamentary Inquiry into whistleblower protections in the corporate, public and not-for-profit sectors. The consultation paper will assist members of the public in making submissions to either or both processes as it:
  • gathers together information about existing whistleblower provisions already operating in Australia, including those under the recent amendments to the Fair Work (Registered Organisations) Amendment Act 2016, and overseas in major comparable jurisdictions; 
  • includes critiques of existing Australian provisions; canvasses a range of options for reform of existing protections under the Corporations Act 2001 and similar provisions under other financial system legislation administered by ASIC and APRA which apply to corporations; 
  • canvasses a proposal for tax legislation to introduce specific protections for whistleblowers; and 
  • identifies the variety of legislative approaches that may be taken by the Government to broader reform in this area generally.
The results of this consultation process and any public submissions received in response to this paper will be made available to the Parliamentary Inquiry. Members of the public are invited to address any matter raised in this paper and should not feel obliged to address each and every question. Submissions for this consultation will close on 10 February 2017.
The 44 page paper comments
Currently there are no specific legal protections under tax law to ensure there is no revelation of the identity of people who disclose, on a confidential basis, information about individuals or businesses which they believe may not be meeting their tax obligations (tax whistleblowers). 
Presently, the identity of tax whistleblowers is afforded some protection incidentally via the taxation confidentiality provisions pertaining to individual taxpayer affairs (Division 355 of the Taxation Administration Act 1953) and privacy laws. 
This protection is not absolute due to a number of exemptions under the law that allow for personal information to be revealed in certain circumstances, including when the information has been disclosed voluntarily by the whistleblower (for example, if a court compels the disclosure of the identity of tax whistleblower as a result of item 1 of the table in subsection 355-70(1) of the Taxation Administration Act). Neither the taxation confidentiality provisions nor the privacy laws prohibit victimisation of whistleblowers if their identity becomes known or provides compensation if victimisation occurs. 
In addition, factual information pertaining to the name of the taxpayer and the section of tax law breached are not protected even if provided as part of a report by tax or whistleblower lawyers’ that is otherwise subject to legal professional privilege. This is because factual matters are not protected by privilege. 
The absence of specific protections and remedies to compensate tax whistleblowers puts Australia at odds with comparable overseas jurisdictions which specifically provide for each. Nonetheless, the ATO encourages reporting of behaviour that indicates particular taxpayers may not be meeting their tax or superannuation obligations. 
Currently, members of the public can inform the ATO about anyone they know who is doing the wrong thing by avoiding or reducing the amount of tax or super that they ought to be paying. Information can be provided anonymously or on a disclosed basis to the ATO by online form, phone, letter or email, or by using the ‘Report a concern’ tool in the ATO app. In addition, a specific facility is provided to allow tax practitioners to report instances of unlawful behaviour directly to the ATO. If they wish to assert a claim of legal professional privilege they need to apply via a claim form on the ATO website which aids the ATO in determining whether to accept or challenge such claims.
Information provided to the ATO is actioned by the Tax Evasion Reporting Centre (TERC). The information provided is assessed and distributed to the relevant ATO compliance areas for consideration. The information may also be used to determine industry trends, identify new risk areas and to assist in developing compliance strategies. 
Some potential whistleblowers do not use the TERC process and instead contact an ATO officer directly. While the ATO currently receives and acts on disclosures, it has no express power to protect people from reprisals or other ramifications. 
The lack of overlap with corporate sector protections is also problematic. A number of tax whistleblowers have made disclosures to the Australian Securities & Investments Commission (ASIC) in the mistaken belief that they are protected by provisions currently under the Corporations Act 2001, when in fact those provisions only provide protection for disclosures concerning contraventions of corporate, not tax, law.
It goes on to state
Statutory protections for whistleblower disclosures in the corporate sector are contained in Part 9.4AAA of the Corporations Act 2001 which was introduced as part of a range of corporate legislative reforms in 2004.
The protections offered under Part 9.4AAA in respect of any disclosure about an actual or potential contravention of corporations legislation: (a) confer statutory immunity on the whistleblower from civil or criminal liability for making the disclosure; (b) constrain employer rights to enforce a contract remedy against the whistleblower (including any contractual right to terminate employment) arising as a result of the disclosure; (c) prohibit victimisation of the whistleblower; (d) confer a right on the whistleblower to seek compensation if damage is suffered as a result of victimisation; and (e) prohibit revelation of the whistleblower's identity or the information disclosed by the whistleblower with limited exceptions.
To qualify for protection whistleblowers must: (a) be either current officers or employees of the company in question (that is, an insider) or contractors (including an employee of the contractor) to the company (that is, an outsider); (b) make the disclosure to ASIC, the company’s auditor, or nominated persons within the company 'in good faith' and have reasonable grounds to suspect that either the company, or some of its officers or staff, have breached (or might have breached) a provision of the corporations legislation; and (c) provide their names before making the disclosure (that is, the disclosure cannot be made anonymously).
If the disclosures are made to nominated company officers or to the company auditor, those people may identify the whistleblower and pass on the information disclosed to ASIC, the Australian Prudential Regulatory Authority (APRA) or a member of the Australian Federal Police (AFP), or with the whistleblower’s consent, other persons.
Similar whistleblower protections to those set out in the Corporations Act are contained in the statutes below. These are available if the disclosures concern misconduct or an improper state of affairs or circumstances affecting the institutions supervised by APRA — Authorised Deposit-taking Institutions (ADIs), insurers and superannuation entities. (a) the Banking Act 1959 (Cth); (b) the Insurance Act 1973 (Cth); (c) the Life Insurance Act 1995 (Cth); and (d) the Superannuation Industry (Supervision) Act 1993 (Cth).
Under the Banking Act for instance, a person may qualify for protections if the disclosure: (a) relates to misconduct, or an improper state of affairs or circumstances in relation to the ADI; and (b) the whistleblower considers that the information may assist the recipient of the disclosure to perform his or her functions or duties.
The disclosure is authorised if it is made to ASIC, APRA, AFP or with the consent of the whistleblower.
Similar requirements are set out for insurers and superannuation entities in the Life Insurance Act 1995, the Insurance Act 1973 and the Superannuation Industry (Supervision) Act 1993 respectively, with some minor differences to reflect the roles of the actuary for insurers and superannuation entities as well as the role of the trustee of the superannuation entity.
In addition, a number of APRA’s Prudential Standards include requirements for ADIs to maintain adequate processes for dealing with disclosures from whistleblowers.
Accordingly, the comments or observations made in this paper about the Corporations Act whistleblower provisions could just as readily be made about the whistleblower provisions under the above-named statutes. Given the overlapping responsibilities of ASIC and APRA for corporate entities, albeit with differing regulatory mandates, submitters should give consideration in responding to this paper whether there is a case for reforming each of these whistleblower provisions at the same time as any amendments that may be made to the Corporations Act, to ensure consistency of regulation and that whistleblowers across the financial system have the same protections and obligations in making disclosures.
Protections for public sector employees or appointees are provided under the Public Interest Disclosure Act 2013 (AUS-PIDA), which seeks to promote integrity and accountability of the Commonwealth public sector by: (a) encouraging and facilitating the disclosure of information by public officials (‘public interest disclosure’) about suspected wrongdoing within an Australian Government Agency, or by a public official, or a Commonwealth contracted service provider. Wrongdoing may including contravention of a law, corruption, maladministration, abuse of public trust, deception in respect of scientific research, wastage of public money, unreasonable danger to health or safety, danger to the environment, abuse of position, or grounds for disciplinary action; (b) ensuring that public officials who make public interest disclosures are supported and protected from adverse consequences; and (c) ensuring that public interest disclosures by public officials are properly investigated and dealt with.
The disclosure can be made by a person that is either a current or former ‘public official’ if the person believes on reasonable grounds there is wrongdoing, defined as ‘disclosable conduct’. Public official includes public servants, Defence Force members, statutory office holders and service providers under a Commonwealth contract.
The emphasis of the scheme is on disclosures of wrongdoing being reported to, and investigated within, government. This emphasis is designed to ensure that problems are identified and rectified quickly. Where an official does not wish to make a disclosure to their own agency, the disclosure can be made to the Commonwealth Ombudsman or the Inspector-General of Intelligence and Security. Officials can make disclosures to people outside government (other than a foreign public official) where certain criteria are met. However, a disclosure must first be reported internally to government except in the case of disclosures in an ‘emergency’ or to a ‘legal practitioner’ to obtain legal advice.
Qualifying disclosures entitle public sector whistleblowers to protection from exposure of their identities , and immunity from civil, criminal and administrative liabilities for making the disclosure . The Act also gives protections to public officials from victimisation and discrimination as a result of making a public interest disclosure. A whistleblower can also seek a range of civil remedies through a court including an apology, injunction, reinstatement order, compensation for loss or damage, and costs.